The Mouthpiece


By Martin Owens
Contributing Editor


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    Martin Owens

    It's There, Just Don't Reach for It

    California tribes offer to "share" Internet poker

    "I don't know what a monopoly is until somebody tells me." Steve Ballmer

    If you can't beat them, join them. Then take over from the inside. That, apparently, is the new California Indian strategy for online poker.

    BACKGROUND

    California's state Constitution specifically prohibits Las Vegas style casino gambling. That's why it took a modification of that Constitution to allow Indian gaming as we know it.

    Gaming classification under the Indian Gaming Regulatory Act is arcane and complex. There is Class I - traditional games that the tribes were playing when Columbus landed. Then there is Class II- bingo and non-banked card games. Tribes can offer Class II gaming without reference to state governments, provided that the games in question are also available outside the reservation. This is why Utah still doesn't have any gambling, Indian or otherwise. California does license municipal card rooms- about 91 of them, though not all are active. When Indian gaming came to the Golden State, much of its success was at the expense of these old-time card rooms, which could not offer slot machines and were not allowed to expand. The bad feeling this generated is only now beginning to dissipate.

    Class III, finally, is everything else- table games like blackjack, craps, and especially slot machines, the big money maker. Sports betting is not allowed outside of the four states which were "grandfathered" under the Professional and Amateur Sports Protection Act (PASPA). No other state authorities are allowed to legalize or license sports bets, and this includes tribal authorities as well.

    When Internet poker was first heard of, both the tribes and the card rooms opposed it, assuming that it would cut into their customer base. But bit by bit, almost all of them have come to realize that online gaming is inevitable. The older generations of customers are quietly leaving the scene, giving way to a new demographic which is completely comfortable with online gambling- as well as online everything else. The gambling businesses which don't connect with these future customers are, in effect, writing their own epitaph.

    I-POKER INDIAN STYLE

    But tribal doubts persist about how the state of California will actually administer and supervise Internet poker regulations. The greatest fear is that the California Indians' existing monopoly on casino style gaming will be gradually poached out from under them, one little adjustment at a time- first poker, then blackjack, then keno... And the tribes have proven, year after year, that they retain the political wallop to keep I gaming bills from even getting out of committee, let alone a general vote. How to participate in online poker without losing their privileged position? Now a collection of influential gaming tribes, including the powerful Pechanga, Barona, Agua Caliente and Lytton groups, has come up an Internet poker bill of their own. The "bill" is not official, like SB 51 or 678, the two bills currently proposed in the California Senate. It merely puts into statutory language a list of preconditions that must be met to win this group's support.

    What the conditions amount to is an Indian monopoly of California's Internet poker. Even the hyper-liberal Sacramento BEE calls the program "self-serving". While on the surface it appears more or less reasonable, closer examination reveals the potential to exclude most potential participants in the California online poker market.

    But let's begin with the good points. First, the Indian program agrees to a limitation of tribal sovereignty rights (that is, a tribe can't be sued without its permission) in order to participate in a state wide market. To ask otherwise would've been unreasonable, as it would've created two standards of law for one activity. Second, it asks that upfront licensing fees and monthly percentages not exceed "rational expected costs". This is not only reasonable, but necessary- proposals of $30 million to $50 million upfront, per operator, are completely irrational. Third, it asks for Internet gambling licenses that last for 10 years instead of the proposed five. Considering the investment that must be made, this is quite understandable.

    Some points were only to be expected. Of course the Indians want to limit online gaming in the state to online poker. To do otherwise, they feel, would be to gradually erode their exclusive grant for table games, craps, and especially slot machines. They want reaffirmation of their existing tribal sovereignties and privileges. But they also want to continue Indian regulation of the I gaming activities licensed to the respective tribes, in the same way that the state of California has only limited oversight ( " concurrent jurisdiction") of the brick-and-mortar activities now.

    The remaining points amount to a hostile takeover. First, only the gaming tribes and the municipal card rooms, their arch rivals, will be eligible for online poker licensing. So-called "Internet cafes" and their computerized sweepstakes programs would be banned outright. Even the racetracks and state lottery, by these terms, are excluded from participation. Even more restrictive, newcomers would not be welcome. Potential licensees would have to have been in business five years to be considered..

    But the real torpedo is the financial requirement. Any potential licensee would have to "pay upfront fees and establish online poker business based on its own creditworthiness and assets" and be" prohibited from borrowing from any of its online vendors". This would have the effect of preventing most of California's Indian tribes, never mind the card rooms, from participating at all. All but a few of the card rooms are small, mostly neighborhood institutions, and many are genuine "mom-and-pop" operations. Most of the 58 California tribes who participate in gaming are likewise not giants. Even if the entry fees were cut down to a more or less sane figure, say between $2 million and $5 million, that clause would prevent joint ventures with foreign operators, and would serve to put participation out of reach for all but the big fish- the larger LA card rooms might have a chance, but far and away the real winners would be the big Indian resorts.

    OUTLOOK

    This Indian "coup", if it can be called that, further clouds the picture for California's I-gaming expansion. For poker and every other game. For this year and every other year. If the price of the big tribes' cooperation is unfair advantages for them and them alone, then other vested interests in the Golden State gambling scene will be sure to throw their political influence against it.

    Even worse, it is a sign that even now, very few here understand that Internet gaming is a global market. It is simply not possible to wall off California's online gaming, to fortify it against the rest of the world (especially the guy next door).. Those who seek to deny everyone else's access to the market are in reality only blocking their own.

    Copyright 2013


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